Case 19-9: Dandelion Company Handout 2 Visualizations Worksheet Discussion 2 The audit manager has informed you that the following risk of material misstatement (RoMM) related to the valuation assertion associated with the investments has been identified: Assumptions, inputs, or methods used to determine the fair value of the security are inappropriate on the basis of assumptions or observable or unobservable inputs in the marketplace and are significant to the valuation (Level 2 securities). [RoMM #1] In addition, the following risk of material misstatement related to the disclosure and presentation of has been identified: The Company's classification of securities is inconsistent with the fair value hierarchy (e.g., it classifies a security as Level 2 rather than Level 3). [RoMM #2] None of these risks were determined to be significant. Note that the above risks have been selected for the purpose of this exercise. An actual engagement would most likely have additional risks of material misstatement identified. The audit manager has provided you with visualizations (created using visualization software) that include additional analytical information about Dandelion's investment portfolio. She has asked you to review the visualizations to determine what each shows and how the information might affect our risk assessment. She has also asked that, when determining the impact on our risk assessment, you specify whether the information obtained from visualization assisted you or could assist you in (1) identifying a new risk of material misstatement, (2) assessing or reassessing the risk level of the risks of material misstatement already identified, (3) designing tailored audit procedures, or (4) providing fact-based evidence to support your current risk assessment. In addition, the audit manager has questions about certain visualizations. Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 2 Use this handout to jot down your responses and discuss those responses with the group. Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 3 Visualization and Description 1 Bar Charts of Pricing Methodologies and Levels Level 1 Level 2 These bar charts are visual representations of the pricing methods for Level 1 and Level 2 securities. Question Response What do these visualizations show? How might these observations affect our risk assessment? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 4 If, in combination with other risk assessment procedures, we identify a risk of material misstatement related to the classification of securities priced using an internal model as Level 2, what can we do to further investigate and obtain an understanding of the Company's process for valuing such securities? Visualization and Description 2 Histograms of Unrealized Gain/Loss September 30, 20Y2 Level 1 Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 5 Level 2 The X-axis of the histograms shows percentages of unrealized gains and losses, and the Y-axis shows number of securities. The visualizations depict the unrealized gains and losses by Level 1 and Level 2 securities, respectively. Question Response What do these visualizations show? How might these observations affect our risk assessment? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 6 What types of procedures can be performed to evaluate what we are seeing relative to unrealized losses in the Level 1 securities? Visualization and Description 3 Comparison of Investment Type This table compares changes in individual investment types (e.g., asset-backed vs. mortgagebacked) between two periods. A green checkmark indicates that the investment type has not changed. (A red \"X\" would indicate a change in the investment type.) Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Question Page 7 Response What does this visualization show? How might these observations affect our risk assessment? How would a red \"X\" affect our risk assessment? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 8 Visualization and Description 4 Number of Securities on File The pie chart above shows the number of investments found in both periods, as well as newly purchased investments and investments withdrawn from the portfolio. This visualization can be used to identify either changes or consistencies in the investment portfolio composition between two points in time. Question Response What does this visualization show? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 9 How might these observations affect our risk assessment? What additional observations can we make in looking at this visualization in conjunction with Visualization and Description 3 (Comparison by Investment Type)? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 10 Visualization and Description 5 Scatterplot: Fair Value Comparison by Amount Difference This scatterplot depicts the difference in fair value between December 31, 20Y1, and September 30, 20Y2, for each security included in the investment portfolio as of both dates. The X-axis represents the fair value of securities as of December 3, 20Y1, the Y-axis represents fair value of securities as of September 30, 20Y2, and the red circles represent individual securities. The solid line indicates zero change in fair value; thus, each red circle on the solid line represents a security with no changes in fair value. Red circles above the line represent securities with an increase in fair value and red circles below the line represent securities with a decrease in fair value. Question Response What does this visualization show? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 11 How might these observations affect our risk assessment? What can we do to understand the change in the fair value of the securities? What additional observations can we make in looking at this visualization in conjunction with the Days in Loss by Fair Value graphic below? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 12 Days in Loss by Fair Value September 30, 20Y2 Level 1 Level 2 Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 13 Visualization and Description 6 Geographical Distribution by Fair Value All Securities This map shows the geographical distribution of the fair value of all securities in the Company's portfolio. Question Response What does this visualization show? How might these observations affect our risk assessment? Copyright 2019 Deloitte Development LLC All Rights Reserved. Case 23 - Handout 2: Dandelion Company Page 14 Why would it be important to know whether any securities are traded on a foreign exchange? What can we do to further investigate? Copyright 2019 Deloitte Development LLC All Rights Reserved
